Proposed Clean Fuel Standard Regulation Threatens Competitiveness

Business competitiveness is inextricably tied to government policy – no surprise there. Great policies like fair tax rates and strong international trade deals can enhance competitiveness and help businesses thrive. When governments get it wrong, the price can be high.

The best way to develop good policy and avoid costly missteps is to consult with business and engage in constructive dialogue, which is exactly what’s needed when it comes to the Trudeau government’s proposed Clean Fuel Standard (CFS) regulations.

The proposed CFS, following the national carbon price policy, is intended to cut CO2 emissions by an additional 30,000 tonnes by 2030 by steering homeowners and industrial facilities toward the use of less carbon-intensive fuels (namely renewables).

Specifically, the CFS would force fuel distributors to meet emissions intensity reduction targets for the fuel they sell for credits, which they can then sell to distributors who are unable to meet those targets.

How much, exactly, this new regulation will cost businesses is difficult to nail down, but it’s plausible that it will double the current $30 per tonne carbon levy currently in place in Alberta. Depending on how the policy is ultimately shaped, the CFS price tag for Alberta’s oil and gas industry could be in the billions each year.

Canada would not be the first to implement such a policy. British Columbia has had one since 2010 and California and the European Union also have similar policies. However, according to a recent study by C.D. Howe Institute, Canada’s will be the most ambitious yet. A key difference is that the proposed Canadian policy will apply not only to liquid transportation fuels, but also to gaseous and solid fuels used by industry and buildings. The CFS will account for the second-largest amount of Canada’s planned emissions reductions, next to the national carbon price itself.

CME has raised with federal officials our concerns that the CFS could have far-reaching ramifications for manufacturers across Canada. CFS will impact industry well beyond transportation fuels to include home and industrial-use fuels. Due to a lack of publicly available analysis, we simply don’t have a grasp on what the impacts may be.

The Trudeau government, to their credit, listened to CME’s concerns and postponed CFS implementation from 2019 to 2022. This temporary reprieve is a big win for Alberta businesses, but more work is needed. If the government is to proceed with such an important and complex policy, a fully-costed economic review of the plan is critical.

Canadian manufacturers are leaders in reducing emissions and are setting world-class benchmarks for environmental performance. The best, and proven, solution for reducing emissions remains investment in new technology, not costly and uncertain regulatory measures.

A proper consultation and a thorough economic assessment are critical to avoiding a policy misstep that could undermine the competitiveness of one Alberta’s most important sectors.

Canadian Manufacturers & Exporters (CME) is the voice of Canadian manufacturing. CME represents more than 2,500 companies who account for an estimated 82 per cent of manufacturing output and 90 per cent of Canada’s exports.